Macro Economy

Give income-tax breaks for home rooftop solar projects

M Ramesh | Updated on: Jun 11, 2014


Experts say the benefit — reduced dependence on grid power — is worth the tax amount foregone

When a business enterprise installs a solar power plant on its roof, it gets a tax break — what in industry parlance is known as ‘accelerated depreciation’. When individuals put up a solar plant on their rooftops, they get nothing — even though the economic activity undertaken by both is the same.

Why not give individuals an income-tax break on what they spend for putting up a rooftop solar project, is a question that many in the industry are asking, with a hope that the new government will listen.

You spend ₹1 lakh on a rooftop plant — deduct ₹1 lakh from your taxable income, the same way you deduct ‘interest on housing loan’.

The numbers

Pashupathy Gopalan, who heads the American solar giant SunEdison’s Asia-Pacific, Middle-East and Africa operations, believes that such a move would “spur a solar revolution in homes” because it would make ‘solar’ viable.

Hemal Zobalia, a Mumbai-based infrastructure taxation expert, holds a similar view. He points out that a solar rooftop system in homes is not yet economically viable, “but if I get a tax break” it becomes attractive.

Typically, a 1 kV rooftop system would cost ₹1 lakh. Assume a normative interest rate of 9 per cent. That is ₹9,000 per year.

Add just ₹4,000 for ‘depreciation’, and maintenance of ₹1,000 a year. The ‘cost’ therefore is ₹14,000 a year. Against this, even if you liberally assume 4 units of electricity a day for 300 sunny days a year, you get 1,200 units, whose value is between ₹7,000 and ₹8,000.

Not viable at all. That is why we are not seeing blazing rooftops across the country.

To make it workable, Governments offer subsidies, which have proven messy for both the benefactor and the beneficiary.

In some states such as Tamil Nadu, for a limited number of installations, the state subsidy rides upon the central subsidy, which then dresses up ‘solar’ to make it worth a look.

Largish rooftop plants on buildings of factories and shopping malls make sense because business enterprises are allowed to treat 80 per cent of the cost of the plants as ‘depreciation’ in the first year for calculating profits. They anyway pay a higher price for the electricity they buy, and solar makes sense. But it is different for individuals.


Chennai-based solar consultant Madhavan Nampoothiri calls for tax sops for rooftop solar.

“This approach has proven to be enormously successful in the US (30 per cent Investment Tax Credits), and has led to a massive growth of installations in US,” he notes, but cautions against misuse of such benefits.

Anil Jain of Refex Energy, which constructs solar power plants, points out that the government does not lose anything by giving a tax-break “because the money is invested back into something which the government should have invested in.”

Zobalia wants to look at it also from the angle of distributed energy generation, less dependence on grid power and the huge job generation that a rooftop revolution will engender.

Published on June 11, 2014
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